 If you moved for work-related reasons in 2017, you might be able to deduct some of the costs on your 2017 return — even if you don’t itemize deductions. (Or, if your employer reimbursed you for moving expenses, that reimbursement might be excludable from your income.) The bad news is that, if you move in 2018, the costs likely won’t be deductible, and any employer reimbursements will probably be included in your taxable income.
Suspension for 2018–2025 The Tax Cuts and Jobs Act (TCJA), signed into law this past December, suspends the moving expense deduction for the same period as when lower individual income tax rates generally apply: 2018 through 2025. For this period it also suspends the exclusion from income of qualified employer reimbursements of moving expenses. The TCJA does provide an exception to both suspensions for active-duty members of the Armed Forces (and their spouses and dependents) who move because of a military order that calls for a permanent change of station. Tests for 2017 If you moved in 2017 and would like to claim a deduction on your 2017 return, the first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction. The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would have increased your commute significantly. Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.) Deductible expenses The moving expense deduction is an “above-the-line” deduction, which means it’s subtracted from your gross income to determine your adjusted gross income. It’s not an itemized deduction, so you don’t have to itemize to benefit. Generally, you can deduct:
But don’t expect to deduct everything. Meal costs during move-related travel aren’t deductible • nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return. Please contact us if you have questions about whether you can deduct moving expenses on your 2017 return or about what other tax breaks won’t be available for 2018 under the TCJA. © 2018
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 Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs.
Pass the tests The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction. The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly. Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.) What’s deductible So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving. In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to connecting or disconnecting utilities are usually deductible, too. But don’t expect to write off everything. Meal costs during move-related travel aren’t deductible. Nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return. Questions about whether your moving expenses are deductible? Or what you can deduct? Contact us. © 2017 Numerous tax consequences may arise when a taxpayer receives or pays a lawsuit judgment, award, or settlement. Unfortunately, attorneys representing taxpayers are often not extensively knowledgeable in the tax consequences of their actions. Therefore, it is common for practitioners or taxpayers to support their tax positions after their pleadings and legal documents have already been executed. As soon as taxpayers and practitioners become familiar with the tax consequences of lawsuits such as income inclusion, treatment of attorney fees, and Form 1099-MISC reporting requirements then the taxpayer or practitioner would be capable of advising their legal counsel on how to structure their lawsuit and/or settlement agreements.
Gerstenbluth v. Credit Suisse Securities, 728 F.3d 139 (7th Cir. 2013) Chester Gerstenbluth was a former employee of Credit Suisse whom was relieved of his duties as an employee as a result of his age. As a result Gerstenbluth contacted the Equal Employment Opportunity Commission and as a result of their investigation Gerstenbluth received $250,000 as a settlement from Credit Suisse. As a part of the settlement agreement Credit Suisse retained the rights to withhold applicable tax withholdings, however the settlement agreement failed to specify the recognition of the $250,000 payment in regards to federal income and employment taxes. The following calendar year Credit Suisse issued a W-2 while including the settlement paid as a part of his wages, tips, and other compensation while withholding the Federal Insurance Contribution Act (FICA) taxes. As a part of the IRC §3101, FICA taxes are imposed on wages (all remuneration) received as a result of employment. Chester argued that the settlement should not get included as wages and thus FICA taxes should not have been withheld and defined his settlement as a payment to withdraw his complaint of age discrimination. IRS Publication 4345 also states that a settlement regarding unlawful discrimination shall get reported as Other Income on Form 1040. Even though Gerstenbluth had a great argument, the court decided that his arguments were not good enough to change how Credit Suisse reported the settlement. This leads to an important consideration for taxpayers; unless a recipient can specifically define the recognition of a settlement then the recipient is at the mercy of the payer. Gerstenbluth continued to argue the recognition of the settlement he received and eventually ran out of arguments while the court continued to rule in favor of Credit Suisse. Gertenbluth’s scenario demonstrates the importance for taxpayers and practitioners of understanding the tax implications of settlements, judgments, and awards. Income Inclusion IRC §62 states that all income is taxed regardless of the source. There is one exception, income derived from personal injury has been considered as a non-income item dating back to when 1919 as a part of the 16th Amendment. IRC §104(a)(2) also explains that a legal settlement or court ruling as a result of personal injury in not taxed. Whereas punitive damages are included in gross income regardless of whether they were received as a result of physical or non-physical injury; although there are exclusions available in relation to wrongful death cases (IRC §104(c)). Treatment of Attorney Fees The amount of attorney fees awarded must also get included within gross income regardless of whether the attorney fees were paid directly to the lawyers (543 U.S. 426 (2005)). A deduction is allowed for legal fees and court costs associated with the taxable amount of the money received, however the deduction is as a part of Schedule A (Itemized Deductions) as a Miscellaneous Itemized Deduction subject to the 2% Gross Adjusted Income (AGI) limitation. In addition, the Miscellaneous Itemized Deductions are a tax preference item for Alternative Minimum Tax (AMT). Form 1099-MISC Reporting Requirements The IRC §6041(a) and IRS Letter Ruling 8841033 in conjunction with one another allows for the determination that if a payer pays out an award that is not taxable to the recipient then the payer is relieved of the responsibility of filing Form 1099-MISC. However, based on Treasury Regulation §1.6041-1(f) for those payments to another person that are taxable, the payer must include the amount that will appear in the recipient’s gross income not reduced by attorney fees on Form 1099-MISC in Box 3. Whereas payments paid to an attorney regardless of the taxability of the payment must get reported on Form 1099-MISC in Box 14 as gross proceeds. Deduction of Legal Expenses There are several IRC sections relative to the deductibility of attorney fees including the following:
Beginning January 1st, 2016 Cornbelt Financial will begin accepting clients. Please watch the following video to learn more about Cornbelt Financial. We look forward to becoming your tax expert. |
AuthorAdam Carr, MBA, EA Archives
May 2018
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